Commercial Construction Disputes — Overview
Commercial construction disputes are often high-value, complex, and time-critical. They arise across the full project lifecycle — from contract formation and tender disputes, through to post-completion defects liability and enforcement of bank guarantees. Matrix Legal advises principals, head contractors, subcontractors, and developers on the full spectrum of commercial construction disputes in Victoria.
Common Types of Commercial Construction Disputes
Head Contractor Disputes
Head contractors face claims from principals (for delay, defects, and variations) and from subcontractors (for unpaid progress claims). Managing both fronts simultaneously — often under the Security of Payment Act — requires tactical coordination and specialist construction law expertise.
Subcontractor Claims
Subcontractors are frequently exposed to payment risk in commercial construction. Security of Payment adjudication is the primary enforcement tool, but where disputes involve excluded amounts, variations, or contract interpretation, litigation or arbitration may be required.
Delay Claims and Extension of Time
Delay claims are among the most contested areas of commercial construction law. Whether you are pursuing or defending a delay claim, issues of critical path analysis, concurrent delay, and the validity of extension of time notices are typically at the centre of the dispute.
Liquidated Damages
Liquidated damages (LD) clauses allow parties to agree in advance on the damages payable for delay. LD clauses must be a genuine pre-estimate of loss — not a penalty. Disputes about whether LD rates are enforceable, whether the contractor was entitled to extensions of time, and whether the principal waived its right to LD are all common issues in commercial construction litigation.
Defects Liability Period Claims
The defects liability period (DLP) in commercial contracts typically runs for 12 months post-practical completion. Disputes about whether defects were notified in time, whether they constitute defects under the contract, and who is responsible for rectification are common issues that benefit from early legal involvement.
Bank Guarantee Enforcement and Release
Bank guarantees are a key security instrument in commercial construction. Disputes about when a principal can call on a bank guarantee — and whether such a call is unconscionable or a breach of the underlying contract — are among the highest-stakes matters in commercial construction law. Under the Fairer Payments on Jobsites Act 2025, a 5-business-day written notice period will be required before any party can have recourse to performance security under Victorian construction contracts (from September 2026).
Forum for Commercial Construction Disputes
Supreme Court of Victoria
The Supreme Court's Commercial Court and Technology, Engineering and Construction Court (TEC Court) is the appropriate forum for high-value and complex commercial construction disputes. The Supreme Court has specialist expertise in construction matters and the power to grant urgent injunctions, including to restrain bank guarantee calls.
County Court of Victoria
The County Court has unlimited civil jurisdiction and is an appropriate forum for commercial construction disputes of moderate to high value where Supreme Court complexity is not required.
Arbitration
Many commercial construction contracts include arbitration clauses. Commercial arbitration offers confidentiality, party-appointed arbitrators with specialist expertise, and flexibility in process. Following Tesseract International v Pascale Construction [2024] HCA 24, proportionate liability laws now apply in arbitration — a significant development for parties in commercial disputes with multiple potential concurrent wrongdoers.
VCAT
VCAT is less commonly used for commercial construction disputes, but can be appropriate for matters falling within its jurisdiction. Following Plunkett v Portier Pacific [2024] VCAT 205, complex matters may increasingly be transferred to the County or Supreme Court.
Frequently Asked Questions — Commercial Construction
A defects liability period (DLP) is a period after practical completion during which the contractor is obliged to rectify defects notified by the principal. In most standard Australian construction contracts (AS 4000, AS 2124, ABIC), the DLP runs for 12 months. During the DLP, the principal retains a portion of the contract price (or holds a performance security) to ensure defect rectification. Disputes about whether an item is a defect, whether notification was timely, and whether the contractor has complied with the rectification obligation are common and often high-stakes.
In narrow circumstances, yes. Courts will grant an injunction to restrain a bank guarantee call if: (1) the call would be fraudulent; or (2) in some jurisdictions, if the call would be unconscionable. Victorian courts have been reluctant to restrain calls on unconditional bank guarantees on purely contractual grounds, but will intervene where fraud or unconscionability is established. Applications must be made urgently. From September 2026, a 5-business-day notice period will be mandatory before calling on performance security under Victorian construction contracts — providing a window to seek legal advice or court intervention.
Concurrent delay occurs when both a contractor-caused delay and a principal-caused delay operate simultaneously and independently to delay the completion date. The treatment of concurrent delay is highly contested in Australian construction law. Generally: the contractor may be entitled to an extension of time but not to delay costs if concurrent delay applies. The specific wording of the contract's EOT and delay cost provisions is critical. Expert programming evidence (critical path analysis) is typically required to establish delay and concurrency.
A liquidated damages (LD) clause is enforceable if it was a genuine pre-estimate of loss at the time of contracting — not a penalty. Following the High Court's decisions in Andrews v ANZ (2012) and Peninsula Balmain (2000), Australian courts have applied a two-stage test: was the sum a genuine pre-estimate? If not, is it nevertheless a legitimate commercial interest protected by the clause? LD clauses are commonly attacked on grounds that: the LD rate is disproportionate to actual loss; the contractor was entitled to extensions of time (reducing or eliminating the delay period); or the principal waived its right to LD by accepting practical completion or failing to give proper notices.
Arbitration offers confidentiality, specialist arbitrators, procedural flexibility, and international enforceability (via the New York Convention). Courts offer: a public record, the ability to join third parties, precedential decisions, and the full range of court orders (including injunctions). If your contract contains an arbitration clause, you are generally bound to arbitrate unless both parties agree otherwise. Following Tesseract v Pascale [2024] HCA 24, proportionate liability defences are now available in arbitration — which may affect strategy for defendants with multiple concurrent wrongdoers in the chain.
Practical completion occurs when the building work is complete except for minor defects that do not prevent reasonable occupation or use of the building. Final completion (or final certificate) occurs after the defects liability period has expired and all notified defects have been rectified. The practical completion date triggers: the contractor's right to final payment (less retention/DLP holdback), the commencement of the defects liability period, and (in most contracts) the cessation of the principal's right to make a general claim for LD for delay. Disputes about whether practical completion has been achieved — and when — are extremely common in commercial construction contracts.
General information only. This information is general in nature and does not constitute legal advice. Commercial construction disputes are complex and fact-specific. Please contact Matrix Legal for advice about your particular circumstances.